Sensitivity Analysis For GLA

[Joe Flacco]

I don't think I have ever used a $25 or $35 GLA adjustment though. If improvement cost new is $100 per SF or $150 per SF then that would mean the improvement is 75% depreciated.

 

[Pittsburgh Pete]

I don't think I have ever used a $25 or $35 GLA adjustment though. If improvement cost new is $100 per SF or $150 per SF then that would mean the improvement is 75% depreciated.

Don't forget that something is attributed to the underlying land. Changes your math.

 

[Joe Flacco]

Don't forget that something is attributed to the underlying land. Changes your math.

Not really. Explain.

The underlying land does not change the math for the GLA adjustment. If you have a $1 million property and the site value is $800k then contributory value of improvements is $200k. Your improvement adjustments are working around that $200k range. All site characteristics adjustments are working in that $800k range. If the subject is 2,000 SF and you have comps that range from 1,000 SF to 3,000 SF then the unadjusted value range is probably still going to be around $1 million. Maybe like $900k to $1.1 million or $950k to $1.05 million.

 

[Pittsburgh Pete]

Not really. Explain.

The underlying land does not change the math for the GLA adjustment. If you have a $1 million property and the site value is $800k then contributory value of improvements is $200k. Your improvement adjustments are working around that $200k range. All site characteristics adjustments are working in that $800k range. If the subject is 2,000 SF and you have comps that range from 1,000 SF to 3,000 SF then the unadjusted value range is probably still going to be around $1 million. Maybe like $900k to $1.1 million.

Of course it matters. Older homes may be selling for $60-$100/SF including the underlying land. The cost new at that point is irrelevant while the portion of the value attributable to the underlying land would factor into the size adjustment.

 

[Joe Flacco]

Of course it matters. Older homes may be selling for $60-$100/SF including the underlying land. The cost new at that point is irrelevant while the portion of the value attributable to the underlying land would factor into the size adjustment.

I don't understand why the portion of the value attributable to the underlying land would factor into the structure size adjustment.

If you have a 1,000 SF home selling for $100 per SF ($100,000), and site value is 25,000, then the adjustment is going to be around $75 per SF. If cost new is $100 per SF then that means improvements are about 25% depreciated including physical, external, functional.

If you have a 1,000 SF home selling for $60 per SF ($60,000), and site value is $25,000, then the adjustment is going to be around $35. If cost new is $100 per SF then that means this improvement is about 65% depreciated including physical, external, functional.

 

[Joe Flacco]

If the improvements are identical in the $60 and $100 per SF examples then that means the sites are different.

Why would you include the site value of the overall value when trying to develop the adjustment for structure size? That's the main flaw or disadvantage of analyzing price / SF.

 

[Pittsburgh Pete]

I don't understand why the portion of the value attributable to the underlying land would factor into the structure size adjustment.

If you have a 1,000 SF home selling for $100 per SF ($100,000), and site value is 25,000, then the adjustment is going to be around $75 per SF. If cost new is $100 per SF then that means improvements are about 25% depreciated including physical, external, functional.

If you have a 1,000 SF home selling for $60 per SF ($60,000), and site value is $25,000, then the adjustment is going to be around $35. If cost new is $100 per SF then that means this improvement is about 65% depreciated including physical, external, functional.

Sorry, but this analysis is soooooooooo wrong! At least it runs counter to what I've seen in the market for the past 30+ years.

 

[Joe Flacco]

Sorry, but this analysis is soooooooooo wrong! At least it runs counter to what I've seen in the market for the past 30+ years.

Sounds to me like you have been doing it wrong for the past 30+ years. Do you need me to put together case studies for you?

 

[Joe Flacco]

Why don't you bring some data in here so I can break it down for you. I got nothing better to do.

 

[Mr Rex]

I don't understand why the portion of the value attributable to the underlying land would factor into the structure size adjustment.

If you have a 1,000 SF home selling for $100 per SF ($100,000), and site value is 25,000, then the adjustment is going to be around $75 per SF. If cost new is $100 per SF then that means improvements are about 25% depreciated including physical, external, functional.

If you have a 1,000 SF home selling for $60 per SF ($60,000), and site value is $25,000, then the adjustment is going to be around $35. If cost new is $100 per SF then that means this improvement is about 65% depreciated including physical, external, functional.

Except when you do the sensitivity analysis using both larger and smaller comps the adjustment is in the $20-30/sf range before the values cross the respective axis of values. It may be closer to the actual cost/sf in brand new homes but even then it usually tends to be a fraction of the $/sf cost.